BoC Governor Tiff Macklem delivered a clear warning that the Bank of Canada is becoming increasingly uncomfortable with the inflation risks created by the Middle East conflict. While policymakers are still willing to “look through” the first-round jump in gasoline prices, Macklem stressed that the BoC “will not let” higher energy costs evolve into broader, persistent inflation across the economy.
The most market-sensitive part of his remarks was the explicit opening of the door to renewed rate hikes. Macklem said that if oil prices continue rising and remain elevated, “there may be a need for consecutive increases in the policy rate.” That marks one of the clearest acknowledgements yet from the BoC that the current energy shock could eventually force a renewed tightening cycle, even as the labor market remains soft and growth moderate.
At the same time, Macklem emphasized that policy flexibility remains critical because risks are moving in both directions. Additional US tariffs and weaker growth could still require further rate cuts, while persistent energy inflation could demand tighter policy instead. With uncertainty “unusually elevated,” the BoC’s core message was that monetary policy may need to be “nimble” as officials try to prevent the oil shock from becoming embedded in long-term inflation expectations.
